IBM’s New Deal: What the Heck is Netezza?

IBM made a splash with its $1.7 billion offer to buy Netezza Corp., which describes itself as a “leading provider of data warehouse, analytic and monitoring appliances.” Deal Journal readers will be forgiven for thinking: Huh?

Bloomberg News

The Netezza Corp.’s TwinFin data warehouse appliance.

In a word, Netezza (pronounced “Neh-TEASE-ah”) is all about data.

Netezza is in a class of companies that provide software and servers – those giant black things crammed in a loud, cold room at your workplace — to crunch numbers on how and why cell phone subscribers shut off their service, who is looking at ads on an online-video website, and how retailers should best manage their maze of suppliers.

Netezza says its edge over competitors is lower cost, ease of setup and small servers that can mesh easily with companies’ existing business software systems. IBM, in fact, makes some of the parts for Netezza servers. Watch a video of one of their colorful servers, called TwinFin. (Just watch the pictures, don’t bother sorting through the jargon.)

The Marlborough, Mass.-based company started life in 2000 as Intelligent Data Engines Inc., and it went public in 2007 at $12 a share. Netezza said it has done work for companies including Estee Lauder, Marriott, NYSE Euronext and Virgin Media.

A quick glance shows the might of IBM compared to Netezza. It had $191 million in total revenue for the year ended Jan. 31, just a blip in IBM’s $96 billion in 2009 revenue. At the end of its fiscal year, Netezza had 425 employees, compared to about 400,000 IBM workers.

Now the question is whether IBM will get lured into a price war. Netezza shares this morning are higher than IBM’s $27-a-share bid, which was a slim 10% premium over Netezza’s Friday close. Netezza has never traded above the current stock price. Shares were around $15 in late August, when takeover rumors start to swirl.

IBM said it has forked over more than $12 billion over the last four year for acquisitions related to analytics firms such at Netezza. But recently IBM has managed to skirt the bidding battles for other data-storage companies such as 3Par. Dell Inc. and Hewlett-Packard Co. slugged it out, with H-P eventually winning out at $2.1 billion, nearly double the initial offer.

IBM says the deal, which Netezza holders must vote on, is expected to close in the fourth quarter. The breakup fee is $56 million, according to the merger agreement filed Monday. IBM values the deal at $1.7 billion, stripping out the cash on Netezza’s books.

Thanks for reading Deal Journal. We would like to direct you to MoneyBeat, the Wall Street Journal’s brand new global blog. MoneyBeat unites MarketBeat, The Source, Overheard and all the Deal Journal blogs, bringing together all the market, M&A, IPO and hedge-fund news from those blogs into a 24-hour hub for finance news. Check it out and let us know what you think at moneyblog@wsj.com.

About Deal Journal

Deal Journal is an up-to-the-minute take on the deals and deal makers that shape the landscape of Wall Street, including mergers and acquisitions, capital-raising, private equity and bankruptcy. In short, wherever money changes hands. Deal Journal is updated throughout each trading day with exclusive commentary, analysis, data, news flashes and profiles. The Wall Street Journal’s David Benoit is the lead writer, with contributions from other Journal reporters and editors. Send news items, comments and questions to deals@wsj.com.